The following speech was delivered at ‘Funding for Success – Higher Education and the Economy Conference’ in Edinburgh today (Tuesday 29 May 2007)

First, I should like to say how glad I am to have this opportunity to talk about higher education in Scotland. So soon after the elections is an interesting time, to say the very least, for Scotland, as a new kind of government takes office. All of us in this room will be waiting expectantly for the Executive to set out its priorities for higher education in Scotland.

What is at stake? The list of objectives for higher education in Scotland has been quite long. We are producing well-educated graduates for Scotland’s labour market, world-class research across a wide range of subjects and we are turning some of those ideas into products for commercialisation. We are contributing to Scotland’s economic growth. Besides all of that, higher education is an important vehicle for social mobility and so our access and admissions procedures must help to ensure that happens. And in doing all of this, we give Scotland a place on the world stage. Higher education is an international activity. Academic staff come to us from all over the world, and so do our students. Higher education has been, quite simply, one of the activities which give Scotland an admired place in the world. The big question is whether we can sustain and improve this performance against international benchmarks. The worry is that if we do not give fundamental thought to our funding mechanisms and improve them, then we will not.

As far as the new Scottish Executive’s priorities for higher education are concerned, I expect them not to be too different from those of the previous administration. Given the nature of the new government, though, what I truly hope is that this Scottish National Party will want to ensure that Scotland’s universities represent all that is best about Scotland. My hope is that they will want us to represent excellence that is internationally admired and that they will wish to encourage the traditional values of higher education in Scotland, of a broad based and flexible teaching programme, in which undergraduates and postgraduates are taught by people who also produce some of the best research in the world.

The key questions, of course, are the challenges to that vision, and how to pay for it. The Scottish Executive has a very large and difficult set of responsibilities and obligations. The new government will wish to ensure that progress is made in healthcare, schools, law and order, transport and in dealing with some of the worst problems of social deprivation in Europe. So can we reasonable expect much enhancement of taxpayer’s support of Scotland’s universities? To look at the sums involved, Edinburgh University’s annual budget is presently £450m. Glasgow’s is around £300m and St Andrews’ a relatively modest £120m. But Cambridge’s annual spend is £900m and Oxford and Manchester spend over £600m each. (By way of further comparison, Harvard last year spent $3bn.) To compete, we need somehow to bring more money into the Scottish system and while the Scottish Executive has been doing what it can, I just do not see the taxpayer being able to find the additional sums needed to ensure Scottish higher education can keep up. By way of footnote, I might add that St Andrews University has performed well in the last decade, we are highly rated in the UK and I make no apology for saying that. I am committed to making the university even better, and this requires additional annual expenditure and increased investment. However, our Funding Council grant for this year has been cut in real terms. This is not special pleading. But is the present Scottish system sustainable if we wish Scottish universities to remain internationally competitive?

The most talked-about challenge at present is the impact of tuition fees in England. It is estimated in the government’s own figures that universities south of the border will earn an additional £1.35 billion annually from variable fees, and that is before the lifting of the £3000 cap. This income will represent not just annual revenue, but a stream that a bank will regard as reliable and continuing, even taking into account the contribution from fee income that the universities have to spent on student bursary schemes. The new income will have substantial leverage effect and we can anticipate large loans being taken out by English universities to build the very best libraries, laboratories, student unions, offices, sports centres, the kinds of facilities that attract good staff and good students.

Higher education is highly competitive. We compete in an international market for the best staff, the best students, for research grants and for donations towards building projects for those new labs and libraries. The upcoming RAE and the all-important census day of 31 October this year have brought with them intensified competition for top academics. I would expect that all of my fellow Scottish Principals are, like me, regularly having to stave off attempts by other universities to tempt away members of staff who are being offered bigger salaries, new laboratories and longer periods free from teaching.

It may be that we are unable to compete with the new and more radically market-based approach in England. I am not entering into philosophical issues of better or worse as far as the two approaches are concerned. If we cannot look to the Funding Council for more of the resources we need for spending and investment then we will have to be creative in finding the money elsewhere. A business plan for a new building, for example, is now a very complicated matrix involving research income, student fees, charitable donations and interest on bank loans, but our financial planning needs to be able to incorporate a larger fraction of cash which arrives with greater certainty, regularity and in greater volume.

In the face of what is going on in the rest of the world, not just in England but in the USA, Australia and Canada, we need to have a clear view of what higher education is for, who should benefit from it, how research should be promoted, how facilities should be kept fit for purpose, and how students should be supported. Is reform needed? Yes, simply on the basis that greater resource needs bringing into the system than present income streams are capable of producing.

Debate over the past few years about higher education funding tends to have been dominated by issues around student support. I utterly support the objectives of increasing the participation rate in higher education while also ensuring that everyone who will benefit from higher education should be able to it regardless of their social or economic circumstances. In all of our activities, social justice is non-negotiable and our admissions procedures rightly ensure this is so. There is more to universities, though, than students and teaching. When we look at support for universities, we have to take account of research as well as teaching.

A proper review, by a specially constituted independent body, would restate the purposes of higher education in Scotland, and to propose adequate and sustainable ways of ensuring those purposes can be met. The timing is right with the election behind us. The review should consider the role of the Scottish Funding Council and the ways it funds universities and imposes regulation in return for that funding. The relationship between higher education and Scottish Enterprise could be examined. Student support requires examination to update the work carried out so thoroughly by Andrew Cubie and his colleagues. What can we learn from experience south of the border and the impact of tuition fees on participation rates and student welfare? As far as possible we need to explore funding mechanisms that do not place unfair burdens on students. An enhanced graduate endowment would most likely be considered but that mechanism has a strong taste of graduate tax about it. So why not go further, and look at the way a graduate tax proper might work? Its introduction would be problematic bearing in mind the legislative restrictions that Scotland’s parliament is still subject to, but it would be well worth knowing whether such a tax is worth pressing for. There are significant advantages to a graduate tax. For one thing the rate of tax levied can be in direct proportion to the financial benefit from enhanced earnings that the four or so years of university have brought to the graduate. So hedge- fund managers could pay more than charity workers. The present fee or endowment regimes also share similarities in the way the majority of students pay, or will be paying which is not until after graduation. Student funding is sometimes discussed in what can be fairly emotive terms. However, graduate taxation might help to do away with the argument that fees are expected to be paid by impoverished undergraduates, because the tax payments would in reality be made by rather well-educated graduates, and even then only when they have found paid employment. The notion of ‘student debt’ and its role in discouraging entry to higher education, would be substantially modified.

If a review body were to consider how public funding might follow the student rather than go straight to the university, then some kind of voucher system might be worth looking at, perhaps with an option for top-up by the students.

Scottish higher education must be funded at levels which make it truly and sustainably competitive, so it can continue to serve Scotland in the highest leagues. Participation levels in Scotland are high – the envy of England. Access to higher education by everyone who will benefit from it regardless of their social or economic circumstances is a goal utterly worth striving for. What I am seeking is to ensure that we can provide access to a higher education system that represents excellence. Our young people deserve no less than the best and we should not compromise on that. But we need urgently to look for more effective ways of supporting students and research. The present structures and mechanisms carry a substantial risk of higher education in Scotland being left behind. Surely a thoroughgoing review at this stage is essential. Doing nothing is not an option.